Arizona Consumer’s Guide to Buying a Solar Electric System

Are you thinking about a PV system for your home or business? If so, this series will provide basic information that you need to know. Consumer's in Arizona are showing increased interest in solar electric systems for their homes and businesses. These solar electric or photovoltaic (PV) systems are reliable, pollution free, and use a renewable —the sun. Although they are still expensive, they are becoming more affordable all the time. And remember: The more energyefficient your house, the greater value you will get from your PV system because your house will require less energy to operate. Measures such as increased insulation and duct sealing, energyefficient lighting, appliances, and windows will drastically reduce your home's use of electricity.

To make PV systems even more affordable, the State of Arizona offers consumers a 25% tax credit up to $1,000 for the purchase of a solar device, including PV. Thirty states now offer net metering to make PV systems even more economical. Net metering means that when your PV system generates more power than you need, the meter runs backwards resulting in an even swap for the grid power that you use at other times. In essence, you receive full retail value for all the power that your PV system generates. In Arizona, the utilities are part way there by offering net billing. Net billing measures the unused electricity the utility receives from your PV system, but pays only a portion of the cost of the electricity used when the PV system does not meet the household load. Check with individual utilities and energy service providers about net metering opportunities resulting from the Environmental Portfolio Standard.

This series is designed to guide you through the process of buying a solar electric system. A word of caution: This is not a technical guide for designing or installing your system—for that information, we recommend that you consult an experienced PV system designer or system supplier (“PV provider”) who will have detailed technical specifications and other necessary information. A PV system can be a substantial investment, and as with any investment, careful planning will save you time and money.

Background: What is a solar electric, or photovoltaic, system?

PV converts sunlight directly into electricity. It works any time the sun is shining, but more electricity will be produced when the light is more intense (a sunny day) and is striking the PV modules directly (when the rays of sunlight are perpendicular to the PV modules). Unlike solar systems for heating water, which you might be more familiar with, PV technology does not use the sun's heat to make electricity. Instead, PV produces electricity directly from the electrons freed by the interaction of sunlight with semiconductor materials in the PV cells.

But you don't need to understand the detailed physics of how PV works to understand its appeal: investing in PV allows you to produce your own electricity with no noise, no air pollution, and no moving parts while using a clean, renewable resource. A PV system will never run out of fuel, and it won't increase our oil imports from overseas. In fact, it may not even contribute to the trade deficit, because many PV system components are manufactured in the United States. Due to these unique characteristics, PV technology has been called “the ultimate energy source for the 21st century.”

The basic building block of PV technology is the solar “cell.” PV cells are wired together to produce a PV “module,” the smallest PV component sold commercially, and these modules range in power output from about 10 watts to 300 watts. A PV system tied to the utility grid consists of one or more PV modules connected to an inverter that changes the system's direct-current (DC) electricity to alternating current (AC), which is compatible with the utility grid and able to power devices such as lights, appliances, computers, and televisions. You may include in the system to provide back-up power in case your utility experiences a power outage.

Before you decide to buy a PV system, you should understand the current status of the technology:

First, it produces power intermittently because it works only when the sun is shining. This is not a problem for PV systems connected to the utility grid, because additional electricity you need is automatically delivered to you by your utility.

Grid-Tied PV System Components

Second, if you live near existing electrical service, PV-generated electricity is usually more expensive than conventional utilitysupplied electricity. Improved manufacturing has reduced the cost to less than one percent of what it was in the 1970s, but the cost (amortized over the life of the system) is still about 25 cents per kilowatt-hour. This is about two to five times the retail price that residents now pay for electricity from their utilities. A solar rebate program and net metering can help make PV more affordable, but it can't match today's price for electricity from your utility.

Finally, unlike electricity purchased month by month from a utility, PV power comes with a high initial investment and no monthly charge thereafter. This means that buying a PV system is like paying years of electric bills up front. You'll probably appreciate the reduction in your monthly electric bills, but the initial expense may be significant. By financing your PV system, you can spread the cost over many years, and a rebate can also lighten your load.

Are incentives available  to help reduce the cost?

Yes! To get specific information, you should call one of the contacts listed on the Getting Help page at the end of this series. Another excellent source is the National Database of State Incentives for Renewable Energy, prepared by North Carolina Solar Center, which contains information on financial and regulatory incentives to promote the application of renewable energy technologies.

Net Billing/Metering—Although 30 states offer net metering (one meter which turns forward and backwards), some Arizona utilities offer net billing. Net billing requires two meters, one measuring the electricity consumed from the utility grid (billed at retail rates of 8 cents/kWh on average), and a second meter measuring the excess energy from the PV system flowing back to the utility grid (billed at a buy back rate of 1–3 cents/kWh). The lower buy-back rate is due to the expense of utility system (wires and poles) used regardless of the direction of the energy. The 30 states offering net metering justify this added expense and place a higher value on PV energy due to the time of day it is produced, often midday is the highest cost for the utility also.

Property and Sales Tax—Tax incentives may include exemption of sales tax on the PV system purchase, exemption of property tax, or state personal income-tax credits, which provide the greatest economic benefit to consumers by lowering high capital costs. The U.S. government also provides financial support for PV technology through a tax credit for commercial uses of solar energy. This energy investment credit provides businesses (but not individuals or utilities) with a 10% tax credit and 5-year accelerated depreciation for the cost of used to generate electricity by solar technologies. In Arizona, “solar devices” (as defined either explicitly in the Arizona Revised Statutes or determined to be solar devices by the Arizona Department of Commerce) can now be sold to Arizona consumers without state tax being charged on the solar equipment purchased by the contractor. (Legally called the transaction privilege tax). County and city sales taxes still apply for those tax authorities that collect their own sales taxes. A maximum of $5,000 is eligible for the exemption. Additionally, the State of Arizona offers consumers a 25% state income tax credit up to $1,000 for the purchase of a solar device, including PV.

Other Incentives—Because of the changing energy market, many incentives from the federal to municipal level are available. For instance, the Tucson Solar Alliance Community Solar Program recently offered a highly discounted/grant for a 1,000-watt PV system at a cost of $3,000 (this ended September 30, 2000). The State of California offers nearly a 50% buy-down through the year 2002. Always check the contacts in the Getting Help section for availability of incentives.

Residential Energy Rate—This number is the average retail residential rate for energy from utilities, in cents per kilowatt-hour (¢/kWh). Check your utility bill for your actual rate.